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Is SPDR S&P Software & Services ETF (XSW) a Strong ETF Right Now?
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A smart beta exchange traded fund, the SPDR S&P Software & Services ETF (XSW - Free Report) debuted on 09/28/2011, and offers broad exposure to the Technology ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Because the fund has amassed over $223.20 million, this makes it one of the average sized ETFs in the Technology ETFs. XSW is managed by State Street Global Advisors. XSW seeks to match the performance of the S&P Software & Services Select Industry Index before fees and expenses.
The S&P Software & Services Select Industry Index represents the software sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Software Index is a modified equal weight index.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for XSW are 0.35%, which makes it one of the least expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.08%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 97.30% of the portfolio.
Looking at individual holdings, A10 Networks Inc. (ATEN - Free Report) accounts for about 0.81% of total assets, followed by Yext Inc. (YEXT - Free Report) and Fair Isaac Corporation (FICO - Free Report) .
XSW's top 10 holdings account for about 7.63% of its total assets under management.
Performance and Risk
Year-to-date, the SPDR S&P Software & Services ETF return is roughly 5.82% so far, and is down about -10.94% over the last 12 months (as of 03/15/2023). XSW has traded between $102 and $152.30 in this past 52-week period.
The ETF has a beta of 1.13 and standard deviation of 32.79% for the trailing three-year period, making it a high risk choice in the space. With about 198 holdings, it effectively diversifies company-specific risk.
Alternatives
SPDR S&P Software & Services ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Invesco Dynamic Software ETF tracks Dynamic Software Intellidex Index and the iShares Expanded Tech-Software Sector ETF (IGV - Free Report) tracks S&P North American Technology-Software Index. Invesco Dynamic Software ETF has $179.25 million in assets, iShares Expanded Tech-Software Sector ETF has $4.92 billion. PSJ has an expense ratio of 0.56% and IGV charges 0.40%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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Is SPDR S&P Software & Services ETF (XSW) a Strong ETF Right Now?
A smart beta exchange traded fund, the SPDR S&P Software & Services ETF (XSW - Free Report) debuted on 09/28/2011, and offers broad exposure to the Technology ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Because the fund has amassed over $223.20 million, this makes it one of the average sized ETFs in the Technology ETFs. XSW is managed by State Street Global Advisors. XSW seeks to match the performance of the S&P Software & Services Select Industry Index before fees and expenses.
The S&P Software & Services Select Industry Index represents the software sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Software Index is a modified equal weight index.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for XSW are 0.35%, which makes it one of the least expensive products in the space.
The fund has a 12-month trailing dividend yield of 0.08%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation in the Information Technology sector - about 97.30% of the portfolio.
Looking at individual holdings, A10 Networks Inc. (ATEN - Free Report) accounts for about 0.81% of total assets, followed by Yext Inc. (YEXT - Free Report) and Fair Isaac Corporation (FICO - Free Report) .
XSW's top 10 holdings account for about 7.63% of its total assets under management.
Performance and Risk
Year-to-date, the SPDR S&P Software & Services ETF return is roughly 5.82% so far, and is down about -10.94% over the last 12 months (as of 03/15/2023). XSW has traded between $102 and $152.30 in this past 52-week period.
The ETF has a beta of 1.13 and standard deviation of 32.79% for the trailing three-year period, making it a high risk choice in the space. With about 198 holdings, it effectively diversifies company-specific risk.
Alternatives
SPDR S&P Software & Services ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Invesco Dynamic Software ETF tracks Dynamic Software Intellidex Index and the iShares Expanded Tech-Software Sector ETF (IGV - Free Report) tracks S&P North American Technology-Software Index. Invesco Dynamic Software ETF has $179.25 million in assets, iShares Expanded Tech-Software Sector ETF has $4.92 billion. PSJ has an expense ratio of 0.56% and IGV charges 0.40%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.